Stellar Tech Reports Don't Ease Investors' Growth Worries

L.A. Times Archives

July 21, 1999 12 AM PT

<i> From Bloomberg News, Times Staff</i>

Spectacular second-quarter earnings at leading technology companies aren’t wowing Wall Street, as investors instead worry about a possible growth slowdown at key firms in coming quarters.

Lucent Technologies, the telecommunications equipment giant, took one of the biggest hits in Tuesday’s market rout, despite reporting a 60% jump in operating earnings for the quarter ended June 30.

Lucent shares dove 9%, down $6.89 to $69.94 on the New York Stock Exchange, where it was the most active stock.

Lucent said operating earnings climbed to $829 million, or 26 cents a share, from $518 million, or 17 cents, a year earlier. That beat analysts’ consensus estimate of 23 cents and matched the highest “whisper” numbers on Wall Street.

Sales rose 22% to $9.32 billion, driven by a 48% jump abroad, as Lucent sold more products in Europe, Asia and Latin America to carry Internet and data traffic that’s doubling every six months.

But sales to U.S. companies lagged some forecasts, leading one analyst to predict it will be tougher to match recent sales growth in coming quarters.

“The company has been stretching to make an aggressive growth target,” said analyst Steven Levy at Lehman Bros., who rates Lucent “neutral.” He said Lucent missed his revenue estimate by about $200 million, mainly because of sluggish sales to corporate customers.

Lucent Chief Executive Richard McGinn downplayed concerns the company won’t meet its growth targets. “When you’re doing a great job of focusing your resources, that kind of growth is available,” he said in an interview.

On Monday, Microsoft Corp. warned that its growth is likely to slow in the second half of the year, in part because of corporate worries about the year 2000 computer bug.

Analysts also currently are estimating weaker year-over-year earnings growth for Intel and IBM in the second half--even though those companies have issued upbeat assessments of their prospects.

With leading tech stocks selling for extremely high valuations, analysts say investors might fear there is too little room for disappointment. Lucent, for example, now trades at 59 times estimated 1999 earnings per share.

Other technology earnings reported Tuesday:

* Texas Instruments, the biggest maker of semiconductors for cellular phones, said quarterly profit more than doubled.

Profit from operations rose to $372 million, or 92 cents a share, from $142 million, or 35 cents, a year earlier. That beat analysts’ consensus estimate of 86 cents. Total sales rose 8% to $2.35 billion, but sales of TI’s profitable phone chips rocketed 23%.

* Xilinx Inc., another maker of chips used in cell phones, reported record quarterly earnings of $51.6 million, or 31 cents a share, versus a loss of $635,000 a year earlier. Sales zoomed 41% to $211 million.

Analysts expected the company to earn 28 cents a share.

* Computer Associates International, the No. 4 U.S. software maker, said its fiscal first-quarter profit increased 10% on rising demand for its consulting services and corporate software.

Profit before one-time charges for the quarter rose to $214 million, or 39 cents a share, compared with $194.2 million, or 34 cents. Sales rose 17% to $1.22 billion.

* Excite @Home, a provider of high-speed Internet access, said its second-quarter loss narrowed.

The firm’s loss before merger costs was $5.9 million, or 2 cents a share, compared with a loss of $17.1 million, or 5 cents, a year earlier. Sales surged to $100.4 million from $42.2 million. All figures assume the May 28 merger of Excite and @Home had occurred prior to the year-earlier quarter.

* RealNetworks, the No. 1 maker of software used to distribute audio and video online, reported a narrower-than-expected second-quarter loss as revenue surged 86% to $28 million.

Its loss narrowed to $270,000, or break-even per share, from $2.6 million, or 4 cents, a year earlier. Analysts expected the company to lose 2 cents a share.

Lowered Expectations

While earnings growth looks promising for blue-chip stocks overall in the second half, analysts say technology companies face tougher year-over-year comparisons. Tech bellwethers Microsoft, IBM and Intel all reported earnings-per-share growth in the first two quarters, but their consensus estimates indicate slowing EPS growth in the second half, particularly in the fourth quarter. Quartely EPS percentage growth for the three companies this year versus 1998:

First quarter

Intel: 39%

Microsoft: 40%

IBM: 47%

Second quarter

Intel: 55%

Microsoft: 60%

IBM: 21%

Third quarter*

Intel: 22%

Microsoft: 18%

IBM: 13%